This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

Blackberry reports profit amid cost-cutting program

BlackBerry delivered a mixed bag earnings report Thursday that an analyst said “kicks the can” to its next quarterly release in June when a more complete sales picture for the new BB 10 line of smartphones is likely to emerge.

The Waterloo-based mobile device maker reported a surprise fiscal 2013 fourth quarter operating profit, helped by cost cutting and higher selling prices even though revenue missed expectations and the decline in its global user base was steeper than forecast.

BlackBerry President and Chief Executive Officer Thorsten Heins stands with new BlackBerry Global Creative Director Alicia Keys at the BlackBerry 10 launch event at Pier 36 in Manhattan on January 30, 2013 in New York City. (Mario Tama / GETTY IMAGES)

Investors seemed divided on what the results meant. Shares in BlackBerry seesawed all day on the report, sliding 1.55 per cent at midday to $14.32 (U.S.) on the Nasdaq after trading in positive territory for most of the day. The stock closed down 12 cents in New York at $14.44 (U.S.) on heavy volume of 106 million shares. In Toronto however, BlackBerry shares closed up 29 cents at $15.09 with almost 24 million shares traded.

“I think this gave the bulls something to feel good about and enough negative news for the bears to stay worried,” said Edward Jones tech analyst Bill Kreher.

He added that it could take a few more months to fully assess whether the company’s new mobile platform and hardware is succeeding in winning back sales in key markets.

Article Continued Below

The earnings release said that excluding one time restructuring charges related to a $1 billion cost cutting program that included 5,000 layoffs, BlackBerry earned a $114 million or 22 cents (U.S.) per share profit in the fourth quarter, versus the consensus estimate of analysts for a loss of 29 cents.

The company lost $114 million or 22 cents per share in the previous three months.

GAAP income from continuing operations was $94 million, or 18 cents per share diluted, compared with a net loss of $118 million, or 23 cents per share in the year-ago quarter.

Revenue fell 36 per cent year over year to $2.7 billion, below the consensus analyst forecast for sales of $2.83 billion.

“We have implemented numerous changes at BlackBerry over the past year and those changes have resulted in the company returning to profitability,” chief executive Thorsten Heins said on an earnings call with analysts.

He added that fifty-five per cent of BB 10 customers globally are coming from platforms other than BlackBerry.

BlackBerry has ceded its once dominant position in developed countries such as the U.S. to Apple and Samsung amid delays in modernizing its products and travails that included a widespread service outage in 2012.

Article Continued Below

The company also said co-founder Mike Lazaridis, who holds more than 5 per cent of BlackBerry shares, will retire as vice chair and a director. Lazaridis, who last week announced the launch of his new venture, Quantum Valley Investments, will step down from the BlackBerry board effective May 1.

BlackBerry said it anticipates a 50 per cent quarter over quarter increase in marketing spending to support the global launch of BB10. It expects to “approach break-even financial results” in its current quarter ending in June based on lower-costs, supply chain efficiencies and improved hardware margins.

The company said it is managing an anticipated decline in service revenue and said the drop will be in the single digits in the first quarter.

The fourth quarter report, meanwhile, captured less than a month of BB10 international sales and shipments in the U.S. and several other important markets.

Rollout of the platform is expected to be completed by the June quarter, which will also reflect early sales of the BlackBerry Q10 QWERTY handset, which Heins said was deliberately released after the touch screen model, and which he called on track for an April launch.

The physical keyboard is popular with heavy texting business users and Heins said the company is seeing strong interest from corporate customers.

“It means something to them,” he said. “We’ve spent decades building this brand, our loyal customers know we made a series of grave missteps in recent years but they're willing to give us the benefit of the doubt now that we’ve committed ourselves to a new strategy and leadership team.”

The BB10 platform and hardware went on sale in late January and are available in 40 countries with more than 30 to come. BlackBerry said the Q10 is testing with over 40 carriers in 20 countries.

The company reported an improved gross margin of 40 per cent driven by higher average selling prices and said it shipped six million smartphones in the quarter.

That’s below the consensus analyst forecast for seven million shipments and compares with 6.9 million smartphones sold in the previous three months.

The fourth quarter shipments include one million of the touch-screen Z10, roughly in line with expectations

BlackBerry, whose balance sheet has been a focus of investors during its transition to BB10, said it generated cash flow from operations of $219 million in the fourth quarter and carries a cash balance of $2.9 billion, on par with the previous quarter.

Formerly known as Research In Motion Ltd., BlackBerry said its subscriber base fell to 76 million in the fourth quarter from 79 million in the previous period.

Kreher said he was expecting a subscriber loss of about 1.2 million and called the drop “very concerning” since it implies sharp sales declines of legacy BlackBerry devices in emerging markets.

TD Securities said the decline in phone shipments implies a drop in sales of legacy phones to five million from 6.9 million in the preceding period as customers held off on purchases until the Z10 launch.

Heins on a conference call with analysts confirmed that the company plans to release a mid-priced version of the BB10 phone by mid fiscal 2014 in an effort to expand sales in developing markets, and said an entry level handset could be in the offing as well.

More from The Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com